John R. Graham is a financial, economic, and policy analyst in the health sector. His appointments include:
Senior Fellow of The National Center for Policy Analysis;
Senior Fellow of The Independent Institute;
Senior Fellow of the Pacific Research Institute;
Senior Fellow of The Fraser Institute;
Adjunct Scholar of The Mackinac Center for Public Policy;
Columnist at Forbes.com's The Apothecary blog;
Member of the Board of Visitors of The Benjamin Rush Society of medical students and physicians.

How the FDA Stifles New Cures, Part II: 90% of Clinical Trial Costs are Incurred in Phase III

Yesterday, the Manhattan Institute released a study I authored, entitled “Stifling New Cures: The True Cost of Lengthy Clinical Drug Trials.” (You can read the full report here.) The paper discusses how outdated FDA policies are making drug development too expensive and too risky. In this excerpt, I detail why late-stage Phase III trials account for 90 percent of the cost of clinical trials in drug development.

Phase III Trials Are the Biggest Driver of the Rising Cost of Innovation

In order to more accurately estimate the contribution of Phase III studies to the cost of drug development, we reviewed public filings and records for companies developing medicines in four areas: GLP-1 analogues for diabetes; factor Xa inhibitors for cardiovascular disease; several new drugs for reducing obesity; and medications for several rare disorders such as Hodgkin’s lymphoma.

We calculated the number of patients studied in every clinical trial that the selected companies sponsored. We then cross-referenced these data with the average per-patient cost of clinical trials, as reported by a 2011 survey by the medical management consulting firm Cutting Edge Information. These are the data that show that, in most cases, companies spent more than 90 percent of their development money per drug on Phase III clinical trials. In the field of obesity, the average was 91 percent; in diabetes, it was 93 percent; in cardiology, it was 94 percent. Only among rare disorders were there exceptions to the general rule because in that field, some companies can take advantage of the FDA’s accelerated approval process and forgo Phase III studies.

Obesity

Approximately one-third of U.S. adults are obese, a number that is growing every year. Obesity is a direct cause of numerous chronic illnesses, such as diabetes, heart disease, and some cancers. Small wonder, then, that enterprising young biotech companies are attempting to develop drugs to address obesity. Yet the current regulatory framework makes their quest exceptionally, and unnecessarily, difficult.

One such company is Arena Pharmaceuticals of San Diego. Arena spent hundreds of millions of dollars developing a weight-loss drug called Lorqess, which could help lower obese patients’ weight, beyond what they could achieve with conventional methods such as diet and exercise. In ten clinical trials that studied nearly 9,000 patients (and cost hundreds of millions of dollars), Arena demonstrated that its drug did get patients to achieve greater weight loss than did patients on a placebo. In one trial, 23 percent of patients taking ten milligrams of Lorqess twice daily lost 10 percent of their body weight; in the placebo arm of the study, only 10 percent of patients achieved that result.

Impressively, the drug had side effects that were almost indistinguishable from those of the placebo—a remarkably clean result. Hence in 2010, it appeared that Arena might be on its way to gaining approval for Lorqess, and helping millions of Americans reduce their risk of chronic illness.

But the FDA didn’t agree. Instead, the agency held that the company had not ruled out the possibility that the drug could cause heart-valve disease. That response effectively forced Arena Pharmaceuticals to “disprove a negative” by a statistical standard that the FDA itself has called “arbitrary.” Furthermore, the FDA raised concerns that the drug had caused cancer in rats years earlier, when it was in animal testing—even though no signs of cancer risk were found in the human clinical trials.

As a result of these objections, the FDA rejected Lorqess in October 2010, sending Arena back to the drawing board. Arena’s stock price declined by 80 percent on the news.

Arena wasn’t the only obesity-drug company to be blocked after promising trial results. Days after rejecting Lorqess, the agency (which has not approved any weight-control drugs in over a decade) turned back another antiobesity drug, Vivus Incorporated’s Qnexa. Shortly after that decision, in February 2011, the FDA rejected another drug, Orexigen’s Contrave, demanding that the company conduct a long-term study to prove that the drug doesn’t increase a patient’s risk of heart attack.

All told, the three companies had enrolled more than 18,000 patients in clinical trials costing over $800 million and achieved, effectively, nothing. “The clear lesson,” wrote Matthew Herper in Forbes last year, “is that weight-loss medicines simply do not have enough benefit to justify any risk…. [T]hese failures will keep drug companies from investing in new obesity research [and that] will probably mean years, if not decades, before another weight-loss drug makes it to market.”

Congress, struck by this tale of frustration and futility, stepped in to moderate the regulators. Last September, the Senate Appropriations Committee stated that it “is concerned with the absence of novel medicines to treat obesity, the second leading cause of preventable deaths in the United States and a disease linked to cancer, high blood pressure, heart disease, diabetes, and stroke. With only diet, exercise, and gastric surgery as options, the lack of obesity medications is a significant unmet medical need.” The committee went on to direct the FDA to report to the Senate by March 30, 2012, on “the steps it will take to support the development of new treatments for obesity.”

The FDA responded to this feedback by meaningfully moderating its requirements for Orexigen’s new heart-attack study. In addition, after Vivus’s Qnexa demonstrated positive results in its new safety study, an FDA advisory panel of outside experts strongly recommended that the agency approve the drug, increasing the likelihood that Qnexa will reach the market. The fate of Arena’s Lorqess is less clear. In each case, the additional trials will cost over $100 million.

Diabetes

Glucagon-like peptide 1 analogues (GLP-1 analogues) are considered by many endocrinologists to be the most promising new class of diabetes drugs. Amylin Pharmaceuticals and its partner, Eli Lilly, developed the first approved GLP-1 analogue, Byetta, along with a long-acting version of the same drug, called Bydureon. Despite clinical trials involving thousands of patients, suggesting that Bydureon is safe and effective, along with the fact that Byetta was already approved, the FDA rejected Bydureon in 2010, approving it only in early 2012 after the companies supplied additional data proving that Bydureon was not likely to increase the risks of cancer and heart disease.

Novo NordiskNovo Nordisk’s Victoza was similarly delayed by the FDA. The fate of Taspoglutide, a GLP-1 analogue from Ipsen and Roche, was even more discouraging: because Phase III trials are the only accepted way for an experimental drug to be tested on large numbers of people, the company had no way to know that Taspoglutide would prove to be less effective than already available pharmaceuticals. When Phase III trials showed that to be the case, the company lost its entire investment in the diabetes field.

Heart Disease

Factor Xa inhibitors are poised to revolutionize the way we treat a number of serious cardiovascular diseases that affect tens of millions of Americans: acute coronary syndrome, atrial fibrillation, and venous thrombosis. A striking fact about the two most advanced factor Xa inhibitors—Xarelto (from Bayer and Johnson & JohnsonJohnson & Johnson) and Eliquis (from Bristol-Myers SquibbBristol-Myers Squibb and PfizerPfizer)—is the sheer number of patients whom these companies studied, nearly all in Phase III clinical trials: more than 130,000, at an estimated cost of over $6 billion. Some 94 percent of the costs involved were, again, incurred in Phase III trials.

The record for this class of drugs amply illustrates why no small company can undertake this kind of research, despite its considerable medical value. Instead, smaller firms (most often in the biotechnology industry) are forced to partner with giant companies, which have the deep pockets to assume the immense cost and risk of a Phase III trial. Hence, regulations and their consequences suit the interests of risk-averse regulators, and limit drug development to a few large companies. But the system shuts out new participants and discourages innovation.

One such example is betrixaban, a factor Xa inhibitor invented by Portola Pharmaceuticals, a small, privately held biotech firm in South San Francisco. In 2009, Portola licensed the rights for betrixaban to pharmaceutical giant MerckMerck for an initial fee of $50 million. However, despite positive Phase II results, Merck gave up on the drug in 2011 and returned it to Portola, because the high cost of Phase III studies in such a competitive area presented even Merck with an unfavorable risk-benefit profile. Portola has stated that it will attempt to carry the drug into Phase III trials itself, though it is unclear whether it will receive sufficient funding. (Portola states that it has enough cash on hand to complete its Phase III trial; see the update below.)

Orphan Diseases

Because most small biotechnology companies are shut out of large potential markets for widespread conditions such as stroke or diabetes, many focus instead on rare “orphan” diseases, where Phase III rules allow for smaller trials and, thus, lower costs. For example, in 2006 Alexion PharmaceuticalsAlexion Pharmaceuticals gained approval for Soliris, used for paroxysmal nocturnal hemoglobinuria, a blood disease so rare that it affects only about 4,000 Americans. Prior to approval, Alexion studied Soliris on slightly more than 200 patients.

Today, Soliris achieves annual sales of about $800 million, and Alexion has a market capitalization of over $14 billion. Similarly, NPS Pharmaceuticals is developing Gattex for parenteral nutrition-dependent short bowel syndrome, which affects 10,000 to 15,000 Americans. While NPS has engaged in a broad clinical program for Gattex, the company has only had to study about 200 patients for its short bowel syndrome application.

Though costs are more manageable for drug development in these rare disorders, we found that Phase III trials for “orphan diseases” often nevertheless represent over 90 percent of development costs. There is one exception to the rule: oncology. There, FDA procedures have allowed many drugs (for example, Adcetris from Seattle Genetics, for Hodgkin’s lymphoma) to win accelerated approval after Phase II studies.

Further Reading

(Part I of this series described how the costs of drug development are rising overall. Part III will discuss the implications for industry and government: specifically, how current FDA policy overincentivizes companies to develop drugs for rare diseases, and how a conditional-approval process would restore the incentive for companies to work on common, chronic disorders.)

UPDATE 1: A spokeswoman for Amylin emails with the following comments:

Your piece mentions the company supplied additional data proving that Bydureon was not likely to increase the risks of cancer and heart disease.

In fact, the reply submission included results from a thorough QT (tQT) study, which showed that exenatide, at and above therapeutic levels, did not prolong the corrected QT interval in healthy individuals as defined by the FDA’s published guidance. The reply also contained results from the DURATION-5 study, which compared the commercial formulation of BYDUREON to BYETTA® (exenatide) injection. Additionally, it includes an update of safety information from studies ongoing or completed since the last submission, as is standard practice in a complete response scenario.

BYDUREON was approved with a Risk Evaluation and Mitigation Strategy (REMS) to ensure that the benefits of BYDUREON outweigh the risk of acute pancreatitis and the potential risk of medullary thyroid carcinoma. As part of the REMS, Amylin has established a communication plan for healthcare professionals to help minimize these risks. In addition, Amylin will fulfill a number of post-marketing requirements to further assess the impact of BYDUREON on medullary thyroid cancer and cardiovascular disease. More information will be available at www.BYDUREON.com.

For reference, following are the releases from Amylin announcing the second complete response letter, the reply to the FDA and the FDA approval of BYDUREON;

Last November (2011) we closed on a $89M equity financing to fund an independent Phase III trial for betrixban in the acute medically ill population. On March 29, 2012, we enrolled our first patient in the APEX Phase 3 trial–a 6,850 patient study of betrixaban in VTE prevention in acute medically ill patients. We have done a lot since we got the asset back a year ago. We still think the Portola story is pretty exciting.

Dier adds that the company had $187 million in cash on hand at the end of 2011, which she says is enough to fund the 6,850-patient Phase III trial to completion. Portola is focusing on a smaller market—hospital and post-discharge prevention of pulmonary embolism—that requires fewer resources than a full-fledged stroke program; as noted above, Xarelto and Eliquis were each studied in over 60,000 Phase III patients.

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Your article promotes a thesis and then distorts the truth to support the thesis, relying on the lack of familiarity of the lay reader with the subject material. You also attempt to mine a vein of tinfoil hat populism with your theme that the evil “gubmint” is denying us access to the cures for obesity, diabetes and cancer that brave scientists have developed.

The problem with your thesis is that it is threadbare and ridiculous to anyone who objectively follows the biotech space. The problem with drug development is not the FDA. It is the drug developers (especially the small-caps) who pursue ineffective and marginally effective therapies into phase III in order to justify their own existence and the salaries of the executives. Ultimately, responsibility lies with the investors who do not hold the biotech companies accountable and instead point their fingers at the FDA, which is actually doing an admirable job of protecting the public from endless snake oil drug candidates.

Your choice of Arena as a company which has been unfairly “stifled” by the FDA instantly marks your article as unworthy of serious consideration. Arena has wasted hundreds of millions of grants and investor funds on an obesity therapy that is by any objective measure not effective enough to justify its use. You mined the data from one of their trials to put the efficacy in the best possible light, but the truth is that in phase III trials placebo-adjusted weight loss was only 3.6% (BLOOM trial) and 3% (BLOSSOM trial). Arena stock was crushed by those weak data in 2009 long before it was resuscitated by disingenuous cheerleaders to be smashed again by the FDA. You play down the findings of a proven link to breast tumors in rats and the failure to exclude a link to valvulopathy, but you would likely be at the forefront of the village mob if the FDA approved a drug that was later found to be harmful to patients.

It’s unfortunate to see the “evil FDA” canard promoted in a major financial publication when I had hoped the concept was confined to Seeking Alpha and Yahoo Finance message boards, but I guess when big money is involved journalistic integrity is the first cow to be sacrificed.

I fully appreciate the argument that Lorqess’ efficacy is “marginal.” But marginal in whose eyes? Marginal efficacy, with clean safety, might be worth approving in the eyes of many patients and clinicians who seek pharmaceutical options.

The argument that, in the current regulatory environment, Arena didn’t wisely spend shareholder money is a completely separate one, one which I don’t take any position on in this piece. Investors need to not conflate the overall regulatory situation with the question of whether or not individual companies have acted wisely under the current regime.

And no, I wouldn’t be at the “forefront of the village mob” if safety problems arose later. It’s precisely my argument that the public needs to accept a certain amount of safety risk in order to allow more drugs to market at lower development cost.

Interesting article. What criteria was discussed when choosing the developing medicines to investigate or were they chosen based solely on the availability and ease of access to their public filings and records?

A recent report predicted 75% of the US population will be overweight or obese by 2020. It is mind boggling that FDA is stifling new obesity drug development by rejecting all three new obesity drug applications in 2010.

Arena pharmaceutical’s Lorcaserin was the safest of the three new drugs with a large number of people in phase 3 studies with no serious side effects. FDA basically railroaded Arena in the 2010 FDA AdCom meeting with the issues you mentioned in your article.

Hopefully science will prevail when Lorcaserin application is discussed again before a new FDA AdCom panel on May 10th.

FDA approved Novo Nordisk’s Victoza even though the company says that it caused cancer in rats and mice.

“In animal studies, the medicine in Victoza caused rats and mice to develop thyroid tumors, some of which were cancerous.”

http://press.novonordisk-us.com/index.php?s=41

However, FDA used rat cancer at 80x normal dosage as an issue to reject Arena’s application for lorcaserin. A team of FDA approved independent pathologists have since then certified that the incidence of cancer was not statistically significant in rats at the dosage that is up for approval.

According to their report: “adenocarcinomas were no longer numerically higher than the control group in the lorcaserin low- and mid-dose groups.

However, the press and public opinion has already been poisoned with all articles about lorcaserin mention the cancer issue.

Nice set of articles, Avik. One quibble, however. New diabetes treatments do not include GLP-1 inhibitors as stated. Rather, drugs like Byetta are GLP-1 mimetics; that is, they augment the activity of endogenous GLP-1 which has a short half-life due to cleavage by the protease DPP-IV. The other half of this new treatment paradigm are DPP-IV inhibitors like Januvia. GLP-1 and other incretins increase insulin secretion by the pancreas, and drugs like Byetta are intended mimic (and augment) that response. DPP-IV inhibitors have the same effect, but work by increasing the amount of a patient’s endogenus GLP-1.